It is helpful for parties negotiating a family law property settlement to have an understanding of the law and the four-step process set out in the Family Law Act 1975 (Cth) and undertaken by Federal Circuit and Family Court of Australia (the Court) to determine the division of assets.

Note: this information relates to property/financial settlement, which is separate from parenting.

Step 1: The Discovery Process - identify the net asset pool for division

In order to determine the asset pool available for distribution the parties to a property settlement have a duty of disclosure – meaning they must both provide full and frank disclosure of their current financial positions.

The discovery process ensures that parties are fully informed and on the same page. It provides certainty and minimises doubt. If this duty of disclosure is not complied with, any agreement reached can later be set aside by the Court. Further, a party who refuses to comply with this duty can be penalised in the alteration of property interests (with costs, a fine, or even found to be in contempt of Court and face imprisonment).

Parties are therefore required by law to provide evidence of the value of ALL currently held assets and liabilities - unless such values are known, or can be ascertained by the other party (for example, where they are a joint account holder). Depending on the issues which arise, further detailed financial disclosure going back 3 years, or more, may be requested.

Parties should be aware that the current asset pool is the net asset pool of the relationship, not the position at separation. As such, parties are advised to finalise property matters between them sooner rather than later. (Note: what has happened since separation is factored in at steps 2 and 3).

Step 2: Assess Contributions

For the purposes of determining a property settlement in accordance with step 2, the overall asset pool is viewed as two separate pools:

·       Property – both real (real estate) and personal (all other things of value owned),
and

·       Superannuation – as this is a future entitlement and cannot be dealt with in the same way.

Division of the asset pool between the parties is done by making an assessment of the parties’ contributions in accordance with s.79 of the Family Law Act 1975.

The Court is required to consider:

·       financial and non-financial contributions, made directly (by a party) or indirectly (on behalf of another party) to the acquisition, conservation or improvement of any of the property of the parties; and

·       contributions to the welfare of the family, including contributions in the capacity of homemaker or parent.

The length of the relationship is also considered. In a long relationship (around 10+ years) contributions are generally considered equal, regardless of who did what, unless an additional contribution factor applies.

These additional contribution factors are:

·       Initial contributions
The Court will consider initial contributions brought into the marriage and if material (meaning they provided a ‘springboard’ to increase the asset pool during the relationship) then it is likely an adjustment of the % division of the property pool in favour of that party may be made.

·       Significant post-separation contributions
Likewise, where a party makes significant contribution to the asset pool after separation it may be considered inequitable that the other party benefit and an adjustment of the % division of the property pool may be made.

·       Significant direct or indirect contributions during a long relationship
If a party received a large inheritance or financial gift or otherwise came into funds (outside of employment or business) which increased the property pool available for distribution at the end of the marriage, that party may be entitled to an adjustment of the % division of the property pool in their favour.

The Court is also required to take into account any factors which impacted on a party’s ability to make contributions, including as a result of family violence.

Step 3. Consider current and future needs

The Court can only alter property interests if it is just and equitable to do so, and must consider whether any further percentage adjustment should be made in favour of either party to ensure a just and equitable outcome having regard to the parties’ current and future needs.

The main factors warranting a further percentage adjustment are:

·       the capacity of the parties to support themselves based on health, age, and ability to earn an income

·       a significant disparity in earning ability

·       a party having a greater responsibility caring for children which impacts their ability to earn

Step 4. Determine whether outcome is just and equitable

The Court will then consider any other factor or circumstance to be taken into account to ensure justice and equity are achieved between the parties before legally altering property interests. Such factors or circumstances include but may not necessarily be limited to:

·       the ongoing impact of family violence suffered by a party, and

·       the result of any wastage that can be attributed to a party.

SUPERANNUATION

Superannuation is dealt with as a separate pool to the property pool as a party does not have control over it (it is owned by the super fund) and cannot deal with it (it is a future entitlement not a current one). However, the overall percentage division of assets between the parties is inclusive of superannuation.

If you would like further information about family law processes and legal advice tailored to your specific circumstances please arrange an appointment.

The only way to secure financial entitlements and end financial obligations following separation with complete certainty is by formalising an agreement with legal documents.

These legal documents legally sever the financial relationship which created property interests in the first place. (Note: this is separate to a divorce order, which only severs the legal or next-of-kin-rights-and-responsibilities relationship).

Without these documents in place, legal rights (to that lotto win) and entitlements (to financial support/spousal maintenance, or ‘alimony’) may continue until another legal event (like the natural death of your former sweetheart) legally severs the financial relationship between you.

A legal property settlement can only be reached in two ways, and it can only be formalised using one of two legal documents.

·       BY A JUDGE OF THE FAMILY COURT

Where no agreement can be reached, one party can apply to have the Court settle property and parenting matters. This is formalised by way of Court Orders (this is ‘going to Court’).

·       BY THE PARTIES

Where agreement is reached (either by the parties on their own or with assistance from a mediator), the parties can formalise their agreement (with or without lawyers) by –

·       agreeing to apply to the Court for Orders made by Consent (so there is no need for a Court hearing, meaning no-one needs to ‘go to Court’); or

·       agreeing to enter into a Binding Financial Agreement (BFA).

CONSENT ORDERS

Consent Orders are generally the most cost-effective, and are advised unless there is reason for them not to be.

As the Family Court has jurisdiction to decide such matters (in accordance with the 4-step process), Orders will not be made unless they are just and equitable, even where both parties consent to the outcome being unjust or inequitable.

An Application for Consent Orders can therefore be made with or without lawyers as it is the Court who finally determines whether the outcome is equitable.

That said, the Application can be complex and parties will generally be advised to take legal advice and to obtain legal assistance to prepare and file the Application. Whether one or both parties retain a lawyer is a matter for them to decide, and will usually depend on individual circumstances.

FINANCIAL AGREEMENTS

A Financial Agreement is a private contract between the parties. It can therefore record any agreement, including in relation to spousal maintenance (or ‘alimony’), whether just and equitable or not.

Whilst the Court has no involvement, Financial Agreements are still governed by the Family Law Act and must fulfil the requirements set out in the Act in order to be legally binding, and not at risk of being set aside. Therefore a Financial Agreement should really only be prepared by a lawyer practising in family law. 

Both parties are required to have lawyers to provide independent legal advice prior to signing a Financial Agreement, as it allows parties to legally contract out of rights and obligations at law. Both lawyers must then sign a certificate required under the Family Law Act to bring the Financial Agreement into effect.